AMERICHIP INC v. ZHU HONGLING AND OTHERS

HCA 1644/2016

[2021] HKCFI 2753

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1644 OF 2016

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BETWEEN

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J U D G M E N T

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Background

1. The Plaintiff, Americhip Inc, is a company incorporated in California, United States of America. At all material times, it carried on the business of design, engineering, developing and selling a range of multisensory marketing and advertising materials and products. The products developed and sold by the Plaintiff were produced by manufacturers which were mostly located in Shenzhen on the Mainland, and in Taiwan. On the Mainland, the Plaintiff conducted its business in conjunction with a related company, Americhip Trading (Shenzhen) Ltd (“AS”).

2.  These proceedings were instituted by the Plaintiff in Hong Kong in June 2016, following proceedings instituted in the High Court of New Zealand, against two former employees of the Plaintiff, for money misappropriated from the Plaintiff as a result of the fraud perpetrated by the employees between 2004 and 2012. In August 2016, the Plaintiff was able to obtain judgment in its favour in New Zealand for a sum of US$15,796,253.02, approximately equivalent to HK$122.45 million.

3.  The miscreant employees were one Mr Jason Dean (“Dean”) and Ms Chen Juan (“CJ”). Between 2003 and 2012, Dean was the person employed by the Plaintiff and entrusted as the person responsible for the operation of the Plaintiff’s business in Shenzhen. By virtue of his position as the senior employee of the Plaintiff, Dean had responsibility for and was in control of all sourcing, project management and quality control for most of the purchase orders placed by the Plaintiff with manufacturers on the Mainland and Taiwan. His work included the selection of entities on the Mainland to manufacture the products for sale to the Plaintiff’s customers in accordance with the Plaintiff’s specifications; overseeing the production process including the payments to be made by the Plaintiff to the manufacturers’ bank accounts; engagement and supervision of the staff of AS on the Mainland; and arranging for payment by the Plaintiff of the business and operational expenses of AS, including the salaries of its employees on the Mainland.

4.  CJ was a Mainland citizen who was engaged by Dean as an employee of either the Plaintiff, or AS. CJ’s work responsibilities included assisting the day to day operations of the business of the Plaintiff and of AS on the Mainland. Assisted by CJ, Dean was responsible for compiling and developing the short list of manufacturers to be hired for the Plaintiff, hiring and dismissing such manufacturers, obtaining pricing information from the manufacturers and liaising with the Plaintiff on the manufacturers’ specifications and pricing.

5.  Between 2004 and 2012, Dean was able to perpetrate a sophisticated and calculated fraud on the Plaintiff, with the participation and assistance of CJ. It transpired that Dean and CJ were a couple and had a child together in 2009/2010. In essence, the fraud involved Dean and CJ making misrepresentations to the Plaintiff as to the prices submitted and charged by the manufacturers for the products supplied to the Plaintiff, and as to the expenses incurred and as shown in monthly expense reports submitted to the Plaintiff, with Dean and CJ themselves pocketing the inflated prices and/or receiving payment misrepresented as prices charged by and paid to the Plaintiff’s manufacturers, when the products were either manufactured by AS’ staff, or were manufactured and paid at lower costs, or the prices had in fact been paid not to the manufacturers but to shell companies controlled by Dean and CJ.

6.  In addition, Dean and CJ submitted false claims related to Dean’s air travel, rent and utilities, salaries, taxes, fees and other expenses, for which Dean procured and obtained payment by the Plaintiff.

7.  As a result of the dishonest conduct of Dean and CJ, which also constituted Dean’s breach of fiduciary duties owed to the Plaintiff, the Plaintiff was defrauded of a sum in excess of US$12.9 million.

8.  The Plaintiff finally came to discover the fraud, and at a meeting held between the Plaintiff’s representatives, Dean and CJ on 14 August 2013, Dean and CJ admitted their fraudulent conduct. However, before further action could be taken by the Plaintiff, Dean and CJ fled from New Zealand and set in motion a chain of transfers of funds from various bank accounts under their control. These included transfers of over HK$20 million made by Dean to CJ on 24 August and 27 August 2013, and onward transfers by CJ, on 26, 27 and 28 August 2013, of the sums received from Dean in her bank account in Hong Kong, to various other bank accounts of hers in Hong Kong, and ultimately on 23 September 2013 to CJ’s bank account in Singapore.

9.  In the proceedings in the New Zealand High Court, the Plaintiff’s claims and evidence were all accepted by the Court, and on 11 August 2016, judgment was entered against Dean and CJ (“NZ Judgment”) for their payment to the Plaintiff of the sum of US$12,929,347.02 (“NZ Judgment Sum”). Prior to that, the Plaintiff had obtained from the New Zealand Court worldwide freezing orders, in April 2015, whereby Dean and CJ were prohibited from dealing with or dissipating assets under their control. On 24 April 2015, the Hong Kong Court granted a Mareva injunction against Dean and CJ in aid of the New Zealand proceedings.

10.  The Plaintiff’s investigations into the fraudulent scheme and discovery made by the various banks pursuant to Court orders revealed that on 6 May 2015, CJ had made a series of transactions in her bank account maintained with DBS Bank Ltd (“DBS”) in Singapore. This was only 11 days after the New Zealand Court and the Hong Kong Court had issued the freezing and Mareva injunction orders against her. The transactions were in flagrant breach of those Court orders, and included 4 transfers of a total sum of HK$20,141,449.95 to the Defendants in these proceedings.

11.  The transfers made included one transfer of HK$12,476,607 from CJ’s account with DBS to the account of the 1^st Defendant, Madam Zhu Hongling, maintained with the Wing Lung Bank in Hong Kong (“WLB”) (“Account”). These proceedings were instituted against the Defendants in June 2016 for recovery of the money transferred by CJ to them, on the basis of unjust enrichment, knowing receipt and dishonest assistance. The trial in February 2021 related to the Plaintiff’s claims against Madam Zhu Hongling (“Defendant”).

12.  On the Defendant’s part, she claims that she had received the transfer of HK$12,476,607 (“HKD”) in her Account in Hong Kong, as a bona fide purchaser for value, without any notice of any impropriety or the alleged misappropriation by CJ of what the Plaintiff claims to be its money. The Defendant claims that she does not have any knowledge of the Plaintiff’s business, nor did she know Dean, CJ, or any of the other 2^nd to 5^th Defendants in this action.

13.  On the Defendant’s case, she had successfully applied to enter Hong Kong under the Capital Investment Entrant Scheme (“Scheme”), had been granted approval-in-principle by the Immigration Department of Hong Kong under the Scheme on 2 December 2013, and was required to invest a sum of HK$10 million in Permissible Investment Assets before formal approval was to be granted. Hence, she had been looking for investment opportunities in Hong Kong and the WLB account had been established by her in September 2012, mainly for arranging for her investment commitment under the Scheme. In August 2014, the Defendant was granted formal approval under the Scheme and obtained a Hong Kong Identity Card. The Defendant claims that by then, she had already been making inquiries in her search for a suitable property to be acquired in Hong Kong for accommodation for herself and her family. The Defendant also claims that there had been transfers to and from, and deposits made into her WLB account in Hong Kong in December 2013, May 2014, June 2014 and January 2015.

14.  On the Defendant’s pleaded case, she had contacted the finance manager of the Bank of China (“BOC”)’s Prestigious Wealth Management Centre in Nanshan (“Centre”), to make inquiries into arrangements for exchanging currency from RMB into Hong Kong dollars for the purchase of property in Hong Kong. Madam Zhu (“Zhu”) of the Centre was the manager assigned to look after the Defendant’s account. The Defendant claims that in the morning of 6 May 2015, Zhu introduced the Defendant to one of her colleagues, Madam Chen Qiongli (“Chen”), who also worked as a finance manager at the Centre. Chen then introduced the Defendant to CJ for the currency exchange arrangement which had been discussed between the Defendant and Zhu.

15.  Chen had introduced CJ to the Defendant as a “loyal and quality client” of the Centre, and as “a trustworthy person”. Chen also informed the Defendant that she had been CJ’s account manager since 2010 and had serviced CJ for 5 years. The Defendant placed reliance on the fact that the Centre provided private banking service to customers with assets of a minimum threshold of RMB 8 million, or above. Trusting Chen’s recommendation and Zhu’s introduction, the Defendant claims that she agreed to carry out a currency exchange with CJ, adopting the exchange rate of BOC and the Centre as the reference point for the exchange arrangement, with the effect that in exchange for the Defendant’s paying RMB 10 million to CJ in Shenzhen, the Defendant would receive HK$12,476,607 in Hong Kong (“the Currency Exchange”). Under and pursuant to the agreement made between the Defendant and CJ for the Currency Exchange, the Defendant and CJ established a joint account at the Centre of BOC on 6 May 2015 (“Joint Account”), into which CJ deposited a sum of RMB 50,000 and the Defendant transferred a net sum of RMB 10 million on 6 May 2015. In exchange, on 7 May 2015, CJ transferred the sum of HK$12,476,607 from her Singapore DBS account to the Defendant’s Account in Hong Kong. On 12 May 2015, the Defendant and CJ went to the Centre again, and jointly signed to effect a transfer of the amount of RMB 10,050,000 from the Joint Account to an account designated by CJ, also maintained with BOC, but in the name of one Madam Hou Chunyan (“Hou”). Chen informed the Defendant that Hou was a friend of CJ, and that CJ had introduced Hou to open a bank account with BOC. After the transfer on 12 May 2015, the interest earned on the Joint Account was shared between the Defendant and CJ, and the Joint Account was then cancelled on the day.

16.  On the above basis, the Defendant claims in her Defence that she is not liable for any of the claims asserted by the Plaintiff against her: that she is not a constructive trustee, had no knowledge of any impropriety, and had at all times acted in good faith reasonably and honestly without knowledge of any circumstance which would have sufficiently given cause for her to make inquiries. She denies that the Currency Exchange was illegal, and claims that she had provided good and valuable consideration for the transfer in good faith, and that she had no reasonable ground to believe that the transfer of HKD to her Account represented the proceeds of any indictable offence. She further claims that she had changed her position in good faith, and that it would be inequitable to require her to make restitution of the HKD.

Tracing and source of funds

17.  The Defendant does not admit that the HKD paid into the Defendant’s Account is traceable to the sums misappropriated by Dean and CJ from the Plaintiff.

18.  Having considered the evidence adduced in this case and referred to in the NZ Judgment, including the evidence of the Plaintiff’s employment of Dean, the long history of his operation of the Plaintiff’s business in Shenzhen, his control of and assess to the Plaintiff’s funds and payments, the unchallenged evidence of the Plaintiff’s witnesses, the admissions made by Dean and CJ of their own fraud, the history of their movement of funds immediately after their meeting with and confessions to the Plaintiff, and in particular the fact that the only evidence of Dean’s source of income was his employment by the Plaintiff, I am satisfied from the compelling evidence that the transfer of the HKD to the Defendant’s Account from CJ’s bank accounts represents the proceeds of the fraud perpetrated by Dean and CJ, and derived from the sum of US$12,929,347.02 misappropriated by Dean and CJ from the Plaintiff and held by them as constructive trustees for the Plaintiff. There is no suggestion and no credible basis to accept that the sums of HK$5 million and HK$4.755 million paid into Dean’s account on 19 March 2013 and 27 August 2013 had any other legitimate source, and were not derived from the funds misappropriated by Dean and CJ from the Plaintiff.

19.  I also accept the submissions made on behalf of the Plaintiff, that even if the funds stolen from the Plaintiff had indeed been mixed in a bank account with monies which had not been stolen, the Plaintiff as the true owner of the funds is entitled to trace its money in the manner which is most advantageous, and the rules in Clayton’s Case and in Hallett’s Estate are applicable. Funds which have been mixed in a single bank account are treated as being paid out in the order in which they are paid in (Essilor Manufacturing (Thailand) Co Ltd v G Doulatram and Sons (HK) Ltd [2020] HKCFI 2498), and a trustee (such as Dean and CJ) making withdrawals from a mixed account is deemed to have withdrawn the trustee’s own funds first, and not the funds belonging beneficially to the Plaintiff. To preserve the value of the victim’s assets which have been paid into a mixed fund, the order of priority in which the various withdrawals and investments have prospectively been made is irrelevant (Re Oatway [1903] 2 Ch 356).

Illegality in a defence

20.  The main plank of the Plaintiff’s case is that the Currency Exchange was illegal under Mainland law, such that the Defendant has no defence at all to the Plaintiff’s claim for restitution based on unjust enrichment.

21.  On behalf of the Plaintiff, it was argued that unjust enrichment is a receipt based cause of action, not dependent on the proof of fault on the part of the defendant, and that the accountability of the defendant is “strict” (Criterion Properties Plc v Stratford UK Properties LLC [2004] 1 WLR 1846). In Shanghai Tongji Science & Technology Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, the Court noted that the questions arising in a claim for unjust enrichment are: (1) Was the defendant enriched? (2) Was the enrichment at the plaintiff’s expense? (3) Was the enrichment unjust? (4) Are any of the defences applicable?

22.  The burden of proof of establishing the defences applicable to the claim for unjust enrichment lies on the defendant (Credit One Finance Ltd v Yeung Kwok Chi & ors [2020] HKCFI 2450).

23.  Of the questions raised in Shanghai Tongji, the focus of the dispute is on whether the enrichment is unjust and if the defences are applicable to the Defendant. The Plaintiff relies on the fact that there is no defence to unjust enrichment, where the transaction by which the recipient receives the benefit was not legal (Barros Mattos Junior v General Securities & Finance Ltd [2005] 1 WLR 247 (at paras 22-43), and further, that a defence of change of position is not available in such case. In Lipkin Gorman v Karpnale [1991] 2 AC 548, Lord Goff observed (at 580):

“It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that a defence should not be available to a wrongdoer.” (Emphases added)

24.  Nor can a recipient be considered to have provided value, or to have acted in good faith, if the transaction by which the funds were transferred was illegal (DBS Bank (Hong Kong) Ltd v Pan Jing [2020] HKCFI 268; Barros Mattos Junior v General Securities & Finance Ltd). A recipient cannot rely on an illegal transaction by way of defence to a claim for restitution, because the Court will not allow a party to litigation to plead or rely on any activity which is considered by the Court to be illegal or wrongful (Arrow ECS Norway AS v M Yang Trading Ltd [2018] 5 HKC 317).

25.  Counsel for the Plaintiff emphasized that in considering any illegal conduct of the recipient, the Court does not have a discretion and does not engage in any form of balancing exercise. If the recipient had acted unlawfully, the he/she is automatically disbarred from relying on the defence, as noted by Briggs J in Barros Mattos:

“There is no room for the exercise of any discretion by the court in favour of one party or the other. If the recipient’s actions of changing position are treated as illegal, the court cannot take them into account. The recipient cannot put up a tainted claim to retention against the victim’s untainted claim for restitution.”

Illegality under PRC law

26.  Both parties have adduced expert evidence on PRC law, as to whether the Currency Exchange was illegal.

27.  The experts agree that there are restrictions imposed on the Mainland for foreign exchange transactions, and these are imposed under the Administrative Regulations of the People’s Republic of China on Foreign Exchange (“Regulations”) and the Administrative Measures for Foreign Exchange of Individuals (“Measures”).

28.  Article 4 of the Regulations which are promulgated by the State Council state that they apply to “foreign exchange receipts and disbursements and to the foreign exchange business activities of domestic organizations and individuals”. In its original Chinese text, Article 4 states:

“境内機構，境内個人的外匯收支或者外匯經營活動，以及境外機構，境外個人在境内的外匯收支或者外匯經營活動，適用本條例。”

29.  Article 2 of the Measures states that individual foreign exchange businesses can be classified into “domestic and overseas individual foreign exchange businesses as per transactor, and current accounts and capital accounts as per transaction property”. The Chinese text states:

“個人外匯業務按照交易主體區分境内與境外個人外匯業務，按照交易性質區分經常項目和資本項目個人外匯業務。”

30.  The evidence of the Plaintiff’s expert, Mr Xu Jianhui, is that the Regulations and the Measures apply to foreign exchange transactions conducted by all domestic individuals, regardless of whether the transactions are conducted within the Mainland, or not. “Domestic individuals” are defined in Article 37 of the Measures to refer to Chinese citizens with citizen identity cards. It is Mr Xu’s evidence that the Regulations and Measures applied to the Defendant who is a citizen of the Mainland, and that she is required to carry out her foreign exchange transactions through authorized financial institutions only. This restriction is imposed by Article 30 of the Measures, which Measures are promulgated by the People’s Bank of China.

31.  Article 30 reads:

“境内個人從事外匯買賣等交易，應當通過依法取得相應業務資格的境内金融機構辦理。”

The English translation of Article 30 reads as follows, although the accuracy of the translation is subject to debate:

“Individuals engaged in foreign exchange trading and other transactions within the territory of the People’s Republic of China shall conduct their business through domestic financial institutions which have obtained corresponding business qualifications pursuant to law.”

32.  There does not seem to be dispute that the only official text is the Chinese one.

33.  Mr Xu also referred to Articles 7 and 9 of the Measures, and Article 2 of the Circular of the State Administration of Foreign Exchange on Issuing the Detailed Rules on the Implementation of the Measures on the Administration of Foreign Exchange of Private Individuals (“Circular”). Under these provisions, domestic individuals on the Mainland are only allowed to purchase or withdraw foreign currencies equivalent to US$50,000 per year. For any foreign exchange transaction which exceeds the quota restriction, the individual has to apply to an authorized bank, with supporting materials to prove that the purpose of the transactions falls within the permitted usages set out in the implementing rules of the Measures.

34.  Article 7 of the Measures states:

“Banks and individuals shall follow the regulations of the Measures in handling individual foreign exchange business and shall not evade quota supervision by dividing the sum or evade authenticity management by using fraudulent bills or vouchers.”

In the original Chinese text, the reference for “foreign exchange business” is “外匯業務”:

“銀行和個人在辦理個人外匯業務時，應當遵守本辦法的相關規定。不得以分拆等方式逃避限額監管，也不得使用虛假商業單據或者憑證逃避真實性管理。”

35.  Article 9 of the Measures provides:

“Annual quota management shall be implemented for individual settlement of exchange and individual foreign exchange purchase within the territory of the People’s Republic of China. For those with the annual quota, individuals may conduct their business with the bank with valid identification certificates. For those exceeding the annual quota, individuals may cooperate through businesses under current accounts with the banks by providing valid identification certificate and relevant evidence of transaction volume and business under capital accounts shall be handled in conformity with the relevant provisions of Chapter III.”

36.  Articles 1 and 2 of the Circular state as follows:

“Article 1. Under (the Measures), the present Detailed Rules are formulated with a view to regulating and facilitating the foreign exchange business operations of banks and personals.

Article 2. The administration of total annual amount shall be adopted for personal settlement and domestic personal purchase of foreign exchange. The total annual amount shall be the value equivalent to USD 50,000 Dollars for each person every year. The State Administration of Foreign Exchange may make adjustment on the total annual amount in light of the position of payment balance.

With regard to the personal settlement and purchase of foreign exchange, in case it is within the total annual amount, it shall be handled at a bank by presenting his/her valid identity certificate; if beyond the total annual amount, those under the current account shall be handled under Articles 10, 11 and 12 of the present Detailed Rules, while those under the capital account shall be handled under the related provisions of the ‘Administration of the Personal Foreign Exchange under the Capital Account’ in the present Detailed Rules.”

37.  Mr Xu has drawn attention to the provisions of Article 45 of the Measures. This original Chinese text states:

“私自買賣外匯，變相買賣外匯，倒買倒賣外匯或者非法介紹買賣外匯數額較大的，由外匯管理機構給予警告，沒收違法所得，處違法金額30%以下的罰款；情節嚴重的，處違法金額30%以上等值以下的罰款；構成犯罪的，依法追究刑事責任。”

The English translation reads (and there is also debate as to whether the translation of the underlined terms is accurate):

“Where any organization or individual, without permission, trades foreign exchange either directly or indirectly, resells foreign exchange at a profit or illegally acts as an intermediary for foreign exchange trading, and the amount of foreign exchange involved is large, the relevant foreign exchange administrative authority shall give the organization or individual concerned a warning, confiscate any illegal income and impose a fine of up to 30% of the illegal amount involved. Where the circumstances of the case are serious, a fine of between 30% and 100% of the illegal amount involved shall be imposed on the organization or individual concerned. Where the circumstances constitute a crime, the organizations or individual shall be pursued for criminal liability in accordance with the law.”

38.  According to Mr Xu, Article 4 of the Regulations, and Articles 2, 7 and 30 of the Measures all apply to the Defendant and to the Currency Exchange, and the Currency Exchange was conducted in breach of the regulations under the Measures, and illegal under Mainland law. The Currency Exchange was not conducted by the Defendant through a qualified domestic financial institution, but through CJ with Zhu and Chen as unauthorized intermediaries, and the Currency Exchange was for an amount which substantially exceeded the annual quota of US$50,000 for which the Defendant did not have the necessary permission to conduct. On Mr Xu’s evidence, the Defendant was liable to administrative penalties under Mainland law as a result of her contravention of the Regulations and Measures. Further, as the Currency Exchange was for a large amount (within the meaning of Article III of the Circular of the State Administration of Foreign Exchange on Issues concerning the Meaning and Applicable Principles of Certain Clauses of Chapter VII Legal Liability of the Administrative Regulations of the People’s Republic of China on Foreign Exchange (“Circular on Meaning”) promulgated by the State Administration of Foreign Exchange (“SAFE”) on 6 November 2008), offences may have been committed under Article 225, Article 191 or Article 312 of the Criminal Law of the PRC.

39.  The expert called by the Defendant, Mr Cheng Xiao, claims that the restrictions imposed under the Regulations and the Measures mentioned by Mr Xu do not apply to the private Currency Exchange arrangement between the Defendant and CJ, to render it unlawful or illegal under Mainland law.

40.  On my understanding of Mr Cheng’s evidence, as summarized by both Counsel, his case is that the restrictions and control imposed by the Measures, and in particular Article 30 of the Measures, do not apply to the Defendant’s Currency Exchange with CJ because: (1) the Measures do not apply to dealings between private individuals; (2) the Defendant did not carry on or conduct any “business” of currency exchange; (3) the Defendant did not make any profit under the one-off Currency Exchange; (4) the Currency Exchange did not involve any transfer of capital outside the Mainland, to constitute a foreign exchange transaction under a capital account; nor did it constitute any trading operation or purchase of goods on an ongoing basis to constitute a transaction under a current account; and (5) the annual quota of US$50,000 only applies to transactions between individuals and banks.

41.  I find difficulty in accepting the evidence of Mr Cheng, for the reasons set out below.

42.  Mr Cheng has not been able to justify his construction of the relevant provisions of the Regulations and Measures.

43.  Article 4 of the Regulations (by its original Chinese text) clearly states that they apply to the “foreign exchange activities” of domestic organizations and individuals. There is no express confinement of the regulated activities to those between private individuals, nor to dealings between private individuals and banking institutions only. Simply on a plain reading of the Chinese text of Article 4, I agree with Mr Xu that what Article 4 extends to and regulates are “activities” (活動) which term by its natural meaning is wider than the choice of “business activities” as used in the English translation. The use of “經營” does not confine the activities to “business” activities, as “經營” simply means to engage in. To “engage” in an “activity” does not require the carrying on of a business, nor does it require such activity or engagement to be repeated. Mr Cheng has not referred to any official interpretation or decided case, to support his construction.

44.  The experts agree that Article 45 of the Regulations states the 4 categories of illegal activities on which fines may be imposed, and in respect of which a crime may be committed in certain circumstances. The activities stated in the Article are private sales and purchases of foreign exchange (私自買賣), “disguised” or sham sales and purchases (變相買賣), purchases and resales at a profit (倒買倒賣), and sales and purchases through unlawful intermediaries (非法介紹買賣), without the necessary permission. Trading in foreign exchange with a view to profit (falling within 倒買倒賣) is only one of the transactions included in Article 45 as being illegal. A transaction of sale and purchase of foreign exchange can fall within the category of “private sales and purchases of foreign exchange” (私自買賣) within Article 45, without their being a trading business, for profit.

45.  Under Article 45 of the Regulations, if an individual engages in a private sale and purchase of foreign exchange without the necessary permission, in breach of the Regulations and the Rules, and the amount of the foreign exchange involved is “large” (which is defined in Article III of the Circular on Meaning to be of or above US $1,000), the individual is liable to an administrative fine of at least up to 30% of the illegal amount involved, and the “illegal income” is liable to be confiscated.

46.  The Measures set out the more detailed rules for the regulation of foreign exchange transactions and activities carried out by individuals. Article 7 requires both banks and individuals to follow the regulations of the Measures in handling individual foreign exchange activities (個人外匯業務). Article 7 also prohibits the evasion of quota supervision, by dividing or splitting up the sum to be dealt in. The Chinese text does not confine the evasion to the division of the sum only (since the Chinese text reads literally “by dividing the sum et cetera”).

47.  The Measures set out how individual foreign exchange purchases are to be regulated and monitored through the individuals’ dealings with banks. In particular, Article 9 states that annual quota management shall be implemented for individual settlement of exchange and individual foreign exchange purchases within the Mainland. Article 30 specifically states that individuals engaging in foreign exchange dealings and other transactions within the Mainland “shall” conduct their activities through domestic financial institutions which have obtained corresponding business qualifications pursuant to law.

48.  The English translation of Article 30 refers to individuals “engaged in foreign exchange trading and other transactions”, whereas the original text uses “個人從事外匯買賣等交易”. On a plain reading of Article 30, a more accurate translation of 交易 should be “dealing” rather than “trading”, but the Article is not in any event confined to “trading” or “dealing”, as it extends to individuals engaging in “other transactions” in foreign exchange as well. So long as they are transactions in foreign exchange, individuals are required under Article 30 to conduct such transactions through qualified financial institutions, and not through other individuals or institutions.

49.  On a plain reading of Articles 7, 9 and 30 of the Measures, I cannot accept Mr Cheng’s attempt to confine their operation to trading in foreign exchange for profit, or to exclude from the operation private transactions for sale and purchase of foreign exchange, or one-off transactions. There is no provision requiring the carrying on of a business of selling and purchasing foreign exchange.

50.  According to Mr Cheng, for any foreign exchange transaction to be regulated by the Measures, it must either be a transaction on “current account” or a transaction on “capital account”, as defined in the Regulations. “Current account” is defined in the Regulations to mean “any transaction account for international receipts and payments involving goods, services, earnings and frequent transfers”. “Capital account” in turn refers to “any transaction account for international receipts and payments that result in any change in external assets and liabilities”, including capital transfers, direct investments, securities investments and loans. Mr Cheng explained that current account deals with trading operations and buying goods “on an ongoing basis”. In his opinion, capital account transactions require a change in external assets resulting from international receipts and payments, and are limited to business operation or commercial activities. Mr Cheng’s evidence is that the Currency Exchange is neither a current account transaction, nor a capital account transaction. My understanding of Mr Cheng’s evidence is that there was no trading or operation of business by the Defendant (only a one-off private transaction), to constitute any current account transaction.

51.  As to whether there was a capital account transaction, Mr Cheng agreed in cross-examination that Article 52 (4) of the Regulations defines “capital account”, and that it expressly includes “capital transfers”. He also agreed that a capital transfer will occur when funds are transferred out of the Mainland by a domestic individual. Counsel for the Defendant submitted, on the basis of Mr Cheng’s evidence, that there was no capital account transaction in this case because there was no “cross-border” transfer of any of the Defendant’s assets from the Mainland to outside the Mainland, since there was a payment of HKD into the Defendant’s Account in Hong Kong, and a separate payment by the Defendant of RMB into Hou’s account designated by CJ on the Mainland.

52.  I reject such submission as being artificial and as unjustified by the language used in the Regulations. I prefer the evidence of Mr Xu, and agree that the Currency Exchange obviously and necessarily involved a transfer of capital, in that before the Currency Exchange with CJ, the Defendant had an asset worth RMB 10 million in the Mainland, represented by the chose in action against her bank, whereas after the Currency Exchange, the Defendant had instead and as a result of the Currency Exchange arrangement an asset worth HK$12,476,607, represented by the HKD in her Account and her chose in action against WLB. If, according to Mr Cheng, there had to be a capital account transaction before the Measures took effect, the Currency Exchange involved a transfer of capital and constituted a transaction on capital account.

53.  Under the Measures, the Defendant had to undertake the Currency Exchange and purchase the HKD through an authorized financial institution (pursuant to Articles 7, 9 and 30 of the Measures). This she failed to do, rendering the Currency Exchange illegal and unlawful under Mainland law. As the Currency Exchange was above the annual amount of US$50,000 (prescribed under Article 2 of the Circular) the Defendant was also required to handle the transaction in accordance with the Detailed Rules and obtain approval for the transaction.

54.  Mr Cheng claims that the annual quota (of US$50,000) for personal settlement and domestic personal purchase of foreign exchange only applies to transactions conducted between individuals and banks, and not to the Currency Exchange between the Defendant and CJ. His reliance on Article 1 of the Circular does not support his opinion. Article 1 only states that the rules are formulated with a view to regulating and facilitating “the foreign exchange business operations of banks, and of individuals”. It does not state that it only regulates dealings between banks and individuals. Article 2 of the Circular also expressly states that the administration of total annual amount “shall” be adopted for “personal settlement and domestic personal purchase of foreign exchange”, without any limitation to such personal settlement and personal purchase conducted with a bank.

55.  The restrictions sought to be imposed on the application of the Regulations and Measures, on Mr Cheng’s construction, would defeat the stated purpose of the Regulations. Article 1 of the Regulations expressly states that the Regulations are formulated “to strengthen the administration of foreign exchange, maintain the balance of international payments, and promote the healthy development of the national economy”. The experts agree that the restrictions imposed on foreign exchange transactions under the Mainland law are to maintain the stability of national economy and foreign exchange reserves, to ensure that the Mainland has sufficient foreign exchange, and to maintain a balance in international income and expenditure. For these purposes, it is necessary to control and regulate, through a supervisory system conducted through (inter alia) authorised financial institutions, the movement of capital outside the Mainland.

56.  Mr Cheng claims that he had not come across any reported cases of proceedings which were taken against individuals in respect of their private foreign exchange transactions. Counsel for the Plaintiff and Mr Xu have referred to SAFE reports of various cases, involving individuals being found to be in breach of the Regulations. These include transfers of foreign exchange made by individuals to outside the Mainland, by the use of fictitious transactions or fictitious documents. They also include at least 4 cases in which individuals had obtained Hong Kong dollars outside the Mainland in exchange for RMB on the Mainland, or using the combined annual quota of individuals on the Mainland to obtain foreign currency in Hong Kong. There are further reports of individuals converting RMB on the Mainland into Hong Kong dollars in Hong Kong, through the use of “underground banking system”. As Counsel for the Plaintiff submitted, there is no elaboration of and no accepted meaning of what “underground banking system” means, but it may be a general term meaning any form or channel other than a domestic financial institution authorized and licensed to engage in foreign exchange settlement and sales business on the Mainland.

57.  Having considered the evidence of the experts in this case, I find that the Currency Exchange conducted between the Defendant and CJ, through Chen and Zhu as intermediaries, was illegal under Mainland law for breach of the Regulations and the Measures. It is not necessary to find whether an offence was also committed under the Criminal Law of the PRC.

Illegality under Hong Kong law

58.  Nor do I consider it necessary to decide on the illegality of the Currency Exchange under the Organized and Serious Crimes Ordinance, by reason of my finding on its illegality under Mainland law, and my findings below on change of position and good faith.

Questions of knowledge, dishonesty and good faith

59.  On the question of good faith, the English Court of Appeal in Niru Battery Manufacturing Co v Milestone Trading Ltd [2004] QB 95 approved the test applied by the trial judge in determining whether a recipient of money should be taken to have acted in good faith:

“I do not think that it is desirable to attempt to define the limits of good faith; it is a broad concept, the definition of which, in so far as it is capable of definition at all, will have to be worked out through the cases. In my view it is capable of embracing a failure to act in a commercially acceptable way and sharp practice of the kind that falls short of outright dishonesty as well has dishonesty itself. The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in the case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made. Where he knows that the payment he has received was made by mistake, the position is quite straightforward: he must return it. … Great difficulty may arise, however, in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure. In such cases good faith may well dictate that an inquiry be made of the payer. The nature and extent of inquiry called for will, of course, depend on the circumstances of the case, but I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making inquiries of the person from whom he received it.”

60.  Earlier in the judgment, Clarke LJ had reviewed the authorities on knowing receipt and on the change of position defence, including in particular the judgment of Nourse LJ in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437. At paragraph 157 of his judgment, His Lordship referred to the “underlying purpose of restitution”, which is “confined to stripping the recipient of an enrichment he should not have received” and which it would be “unjust to allow him to keep”. Clarke LJ concluded, at paragraph 162 of his judgment, that for the defence of change of position to succeed in answer to a claim for restitution, “the essential question is whether on the facts of a particular case it would in all the circumstances be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake to deny restitution to the payer”. Dishonesty is also not a necessary ingredient of liability, for knowing receipt.

61.  It has to be pointed out at this stage that in deciding whether a defendant is dishonest (when this is necessary to do so in the context of a claim of dishonest assistance), the objective standards of ordinary and decent bystanders are to be applied (Ivey v Genting Casinos (UK) Ltd [2018] AC 391). For dishonest assistance, “blind-eye knowledge” is equated with actual knowledge. Knowledge of a fact may be imputed to a person if he turns a blind eye to it, or if he deliberately abstains from inquiry in order to avoid certain knowledge of what he already suspects to be the case. However, blind-eye knowledge requires two conditions, the first being the existence of a suspicion that certain facts may exist, and the second being a conscious decision to refrain from taking any step to confirm their existence. (See Group 7 Ltd v Nasir [2020] Ch 129.)

62.  In relation to dishonesty, even gross negligence on the part of the defendant is not sufficient. A dishonest state of mind may involve knowledge that the transaction is one in which one cannot honestly participate, or it may involve suspicion that certain facts may exist, combined with a conscious decision not to make inquiries which might result in actual knowledge of those facts (Barlow Clowes International v Eurotrust International Ltd [2006] 1 WLR 1476). The latter constitutes blind-eye knowledge, but the suspicion, subjectively determined by reference to the person’s belief, must be firmly grounded and targeted on specific facts, and there must be a deliberate decision to avoid obtaining confirmation of facts the existence of which the person has good reason to believe.

63.  In the context of knowledge for knowing receipt, the legal test of liability is whether the recipient’s state of knowledge is such that it would be unconscionable for it to retain the benefit of the receipt. Constructive knowledge is insufficient for establishing liability in knowing receipt, but for knowing receipt and in the context of a claim of restitution, “unconscionability” is a lower standard than dishonesty.

Whether the Defendant acted in good faith

64.  On the facts of this case, I am not satisfied that the Defendant had changed her position in good faith, or that she was a bona fide purchaser for value without notice, so as to be entitled to set up any good defence to the Plaintiff’s claim for restitution.

65.  In considering the cause of action of either knowing receipt, or dishonest assistance, and the question of whether the Defendant had acted in good faith, it is useful and indeed necessary first to ascertain the facts which the Defendant actually knew, her subjective belief as to the facts, and the circumstances in which the Currency Exchange was agreed and made.

66.  On the Defendant’s evidence, she had agreed to the Currency Exchange for a significant amount of RMB 10 million with CJ, who was a complete stranger to her on 6 May 2015. She agreed to the transaction because, on her case, CJ had been introduced to her on that day by Chen - whom she also did not know before 6 May 2015, but who was introduced to her on the day by her own account manager, Zhu. The Defendant sought to highlight the fact that Zhu was the manager assigned by BOC to look after her account at the Centre with BOC, and also that Chen had told her that she had managed CJ’s account at the Centre as manager, for 5 years. The Defendant emphasized that the Centre only serviced private banking customers who had assets of at least RMB 8 million or above in their accounts, and that Chen had advised the Defendant that CJ was a trustworthy person.

67.  The fact that CJ had assets of at least RMB 8 million cannot in my judgment mean, to an ordinary, decent and honest person, that she must be honest, or reliable. It only meant that she had a significant amount of money in her account with BOC, and could effect the transfer or exchange proposed. It shows nothing about CJ’s background, nor the source of her funds.

68.  The Defendant in her supplemental witness statement (“Supplemental Statement”), filed on 19 July 2018, one year after her first statement, sought to elaborate on her relationship with Zhu, and Chen, of BOC. The Defendant explained that she had opened her bank account at the Centre on the recommendation of her husband, because her husband’s former classmate at the Shenzhen University was the branch manager of the Centre. The Defendant also explained that Chen had informed her that CJ had participated in some family gatherings with staff of the Center, including Chen herself and Zhu, and that CJ was acquainted with many of the staff members. The Defendant explained in her Supplemental Statement that before the Currency Exchange arrangement was agreed, Chen told the Defendant that CJ “operated a proper business with her husband”, and would like to invest in the property market on the Mainland, and required RMB for such purpose. The Defendant claimed that she also told Chen that she would like to buy property in Hong Kong for accommodation, as she would the immigrating to Hong Kong in the future. The Defendant claimed, in her Supplemental Statement, that she believed that the money CJ was to give her came from her business “with proper sources”.

69.  As Counsel for the Plaintiff submitted, what the Defendant said in her Supplemental Statement and in her testimony, when she sought further to elaborate on her dealings with CJ through Chen and Zhu and on what she had been told by Chen or Zhu, were all attempts to bolster her evidence to suggest that she had made adequate enquiries as to the background of CJ and Dean, and of the source of the HKD transferred into her Account. In her original statement, she had made no mention of the alleged close relationship between CJ and Chen and the BOC staff, nor any enquiry which she had made into CJ’s background – apart from what Chen had told her, that Chen had serviced CJ for 5 years as a loyal and quality client of the Centre, and that CJ was a trustworthy person. In any event, even if the Defendant was to be believed as to what Chen had told her, very little (if anything) of what was described in the Supplemental Statement could reasonably justify the Defendant’s purported belief as to the “proper sources” of CJ’s funds.

70.  Even on the Defendant’s testimony, her case (revised from her original statement) was that in the morning of 6 May 2015, it was Zhu who had called her and told her of an opportunity of a “private foreign currency exchange”, and that there was a client of the Centre, whose husband was a foreigner, who were doing foreign trade business and wanted to make investment in real estate on the Mainland, and hence required RMB. Zhu asked the Defendant if she was willing to exchange foreign currencies with that client. After discussing the matter with her husband, who considered that it should be all right to deal with a client who held a private banking account with the Centre, the Defendant called Zhu and sought confirmation from Zhu as to whether the client was engaged in a legitimate business, the kind of business it was and whether the client was reliable. There was no assurance which Zhu could have given the Defendant, as Zhu did not know CJ at all. There then followed the Defendant’s later discussions with Chen, and the agreement reached with CJ as to the manner of effecting the Currency Exchange.

71.  There is however no change in the Defendant’s evidence that Chen (who introduced CJ to her) and CJ were both strangers to her before 6 May 2015.

72.  What is more telling is the Defendant’s claim in the Supplemental Statement, when she described what she had had told the Shenzhen police, in the course of their investigations into CJ as operator of a number of foreign currency exchange transactions involving large amounts. In her Supplemental Statement, the Defendant stated that she and her husband had not known CJ before the Currency Exchange but that they had placed their trust on Zhu and Chen as the financial managers of the Centre. The Defendant then explained that “the only reason that (she and her husband) engaged in the foreign currency exchange transaction was that the amount of foreign currency we needed to remit to Hong Kong exceeded the daily controlled limit in Mainland China”. From this, it is quite clear that at the material time of the transaction with CJ, the Defendant knew of the restrictions under Mainland law on the amount of foreign currency that can be purchased and remitted to Hong Kong from the Mainland, and that the Currency Exchange was entered into in order to evade such restrictions. This is apart from and notwithstanding the arguments made by the Defendant’s expert for the purposes of trial, as to the absence of restrictions on private sales and purchases of foreign currency and the claim that the annual quotas do not apply to such private transactions. Subjectively, the Defendant knew and believed in May 2015 that there were restrictions, and that she had exceeded the permitted quota for the foreign currency she was buying from CJ.

73.  It is also pertinent, and highly material, that the Defendant had never sought to ask, or to query, why Zhu and Chen should refer CJ to the Defendant to carry out the Currency Exchange, and why BOC and the Centre itself should decline the transaction, when CJ had been a “loyal and quality client” of the Centre and was a “trustworthy” person, who required RMB for real estate investment which they would like to make on the Mainland. Nor has the Defendant ever offered such an explanation in her Defence and in her evidence, why no such questions had ever been asked. As Counsel highlighted, neither Zhu nor Chen was called as witnesses in the action, to give evidence to support the Defendant’s case that they had both championed CJ as a trustworthy client, and also to support Mr Cheng’s evidence that private foreign exchange transactions between individuals were legitimate, and that the annual quota did not apply to the Defendant’s Currency Exchange with CJ - matters with which they as bank officers must be familiar, if true. The inferences can properly be made that any evidence from BOC, Zhu and Chen would not be of assistance to the Defendant’s case.

74.  The Defendant well knew that Zhu and Chen were both managers employed by BOC and should be promoting the business of the Centre, but Zhu had (on the Defendant’s evidence) approached the Defendant instead to do the Currency Exchange with another client of the Centre. If Zhu or Chen did not consider that BOC should or could properly carry out the transaction with CJ, or if BOC had decided against doing the transaction with CJ, this could have been because there were questions as to the source of CJ’s funds, and/or as to the legality or propriety of the transaction. Why BOC did not transact with CJ, and why Zhu and Chen had acted as intermediaries to refer the Currency Exchange to the Defendant instead, were obvious questions which any honest and decent person in the Defendant’s situation would have asked. This is particularly so against the undisputed fact that CJ and the Defendant had agreed to carry out the Currency Exchange at BOC’s rate of exchange, and not any other rate which might have made it more attractive for the Defendant and CJ to carry out the Currency Exchange privately between themselves. The circumstances in which Zhu and Chen had referred CJ and the Currency Exchange to the Defendant were highly suspicious, and would have immediately raised alarm in the mind of any ordinary and honest person, to question whether the transaction is one in which one can honestly participate.

75.  The Defendant also claimed in Court that CJ’s source of funds would have been known to BOC. On behalf of the Defendant, Counsel argued that it was reasonable for the Defendant to have trusted CJ and to have believed Chen’s recommendation of CJ as a trustworthy person, because as a client of the Center holding a private banking account, the bank would have conducted due diligence checks against CJ’s assets. Any strength in such argument loses force when considered with the fact that BOC did not carry out the foreign exchange transaction with CJ. It might be precisely because BOC found the source of the funds in CJ’s account to be suspicious.

76.  Counsel also sought to argue that if CJ was regarded by the Mainland authorities to be a dishonest person, she would have been included in the list of dishonest persons on the Mainland and could not have been able to hide this fact from BOC. This is pure speculation, was not the subject of any inquiry made by the Defendant, and was not the evidence of BOC. The fact that Zhu and Chen did not carry out the Currency Exchange on BOC’s behalf might in fact suggest that BOC did regard CJ to be a dishonest person.

77.  The manner in which the Currency Exchange was carried out between CJ and the Defendant lends support to the Plaintiff’s claim, that the transaction was suspicious and was regarded as suspicious by the Defendant, and that the Defendant was indeed suspicious of CJ’s credibility. The Joint Account was first established, into which CJ made a first deposit and the Defendant also deposited the RMB required for the Currency Exchange. The joint signature arrangement for the Joint Account was to ensure that the RMB would not be withdrawn before the HKD was received in the Defendant’s Account in Hong Kong. As the Defendant herself acknowledged in cross-examination, she had the “normal and ordinary suspicion” against CJ as a stranger. Although her Counsel sought to highlight the Defendant’s explanation, that her main concern was “the security of the collection of the HKD” and the smooth implementation of the Currency Exchange, it is clear from the fact that the Joint Account had to be set up, that the Defendant did harbour suspicions, and her concern as to the “security” of the collection of the HKD demonstrates that the successful collection of the HKD had been considered to be risky, in that dubious factors may well exist which might render the transfer of CJ’s money into the Account and the Defendant’s collection of payment impossible. If the Defendant did not trust the procedure for collection, it meant that she did not trust the individual with whom she was dealing, namely CJ. She must have had reason to believe that the payment to be made by CJ was suspicious, and payment was suspicious because the funds from which payment was to be made might not have been obtained legitimately, and was not for CJ to control and freely use.

78.  What the Defendant knew, and what inquiries she was reasonably and honestly expected to make, have to be considered against her own background and experience. She portrayed herself to be a housewife. However, it is clear from her background that she was certainly not ignorant as to financial and business affairs. She was a university graduate and obtained a Bachelor’s Degree in economics from the Shenzhen University in 1995. After graduation, she had worked for a year in the finance department of a publicly listed company on the Mainland. In 1996, she left this job to work at another company, as the Head of Financial Management. In 2001, she took a short break from work to have a child, and then joined a company established by her husband, and became one of the directors, again being mainly responsible for the company’s financial management. On her own evidence, this company has a well-known brand name in the industry, with 143 employees, and the Defendant, her husband and their relatives own the entire share capital of the company. I therefore reject the Defendant’s claim that she was an unsophisticated housewife with no experience or knowledge about financial affairs. Her degree and her years of working in the finance department of various companies must have enabled the Defendant to acquire an understanding of banking, financial and business matters, and exposed her to dealings in these areas, for which she was said to be responsible. As evident from her Supplemental Statement, she was acutely aware of the legal restrictions on foreign exchange, and that there were quotas for such dealings on the Mainland.

79.  It is also the Defendant’s evidence that she had experience of making remittances between Hong Kong and the Mainland before the Currency Exchange transaction in May 2015. The remittances were for substantial amounts, in excess of HK$20 million in December 2013, and another HK$12.2 million in May 2014, and involved currency exchange with one Mr Zhou, who was a business associate and a good friend of the Defendant’s husband. It is therefore incredible that she would know nothing about the need to have sufficient quota, and the existence of restrictions on the purchase and transfer of foreign currency to outside the Mainland.

80.  A significant factor in the transaction is that after the Joint Account was set up for the Currency Exchange, and the HKD had been received by the Defendant in Hong Kong from CJ, the RMB in the Joint Account was transferred by the Defendant and CJ jointly, not to an account in CJ’s name as the counterparty to the agreed Currency Exchange arrangement, but to a bank account of Hou - another total stranger to the Defendant. There were no questions asked at all as to the reason for this change of arrangement, why Hou was involved, who she was, and what claim she had to the significant amount of money. If, as the Defendant acknowledged, she had the normal suspicion against CJ who was a stranger, I see no reason why the Defendant would not have harboured the same suspicion against Hou, of whom she knew nothing as to her business or background, and as to whether a transfer of the significant sum of money from the Joint Account, which bore the joint names of the Defendant and CJ, would create any problems for the Defendant, and expose her to any risk of civil or criminal liability.

81.  The Defendant claimed in cross-examination that she did not have any choice but to agree to the transfer to Hou, when the HKD had already been deposited by CJ and received by her, and that she no longer had control over the transfer of the money to Hou. I agree with Counsel for the Plaintiff that this is neither a convincing nor acceptable answer. The Defendant was entitled to refuse to make the transfer to Hou, as she had never consented to this as part of the Currency Exchange agreed with CJ. By acquiescing in the transfer, the Defendant was simply and deliberately turning a blind eye to the propriety of the transfer and the entire Currency Exchange, and decided not to ask further questions of CJ which might result in her acquiring actual knowledge of impropriety.

82.  When determining the subjective state of mind of a defendant, unless there is external evidence in which the defendant expresses what he or she knows or thinks, it will inevitably be necessary for inferences to be drawn, from what the person knew, said and did, both at the time of the transaction and later, including what the defendant said in evidence (Barlow Clowes). The reasonableness of an alleged belief or state of mind may often be determinative of whether the Court will infer that a person held the stated belief (Ivey v Genting Casinos (UK) Ltd [2018] AC 391).

83.  For a finding of dishonesty to be made, it is not necessary to show that the defendant knows, or has a suspicion of all of the detailed facts or aspects of any breach of trust or breach of duty complained of. In Barlow Clowes International v Eurotrust International Ltd [2006] 1 WLR 1476, the Court held that it would be sufficient if the defendant entertained a “clear suspicion” that monies were being misappropriated from the company, and then made a decision not to ask questions about the transactions he was assisting. If the defendant suspected that the relevant individuals had no right to use the company’s money for their own purposes, yet chose not to inquire, that would be sufficient. It did not matter that the defendant did not know that the monies paid away were held on trust, or that he did not know the precise involvement of the fraudsters. A person can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust, or even what a trust means (Twinsectra [2002] AC 164).

84.  Hence, it is not necessary for the Defendant in this case to know precisely that the monies being transferred to her by CJ were held on trust, or to know how the monies had been misappropriated by CJ from the Plaintiff. On the evidence, she knew and believed that it was necessary to have the necessary quota for her purchase of HKD, and that the HKD required to be remitted to Hong Kong exceeded the permitted daily limit, and that she had not applied for nor obtained the necessary approval. The Defendant therefore knew that she required but did not have the necessary quota for the transfer and the acquisition of the HKD, and yet she proceeded with the Currency Exchange which would enable the “indirect” transfer, and evade the controls under the Mainland regulations. The Defendant had knowledge that the Currency Exchange was not a permitted acquisition and transfer under the relevant Mainland regulations and controls.

85.  The Defendant claimed that she had put her trust on Zhu, her manager, and on her colleague Chen, but CJ was a complete stranger. She admitted that she had the ordinary suspicion against CJ as a stranger, and set up the Joint Account arrangement, which meant that the Defendant did have suspicions as to whether CJ could be trusted. If the Defendant could not trust CJ to be honest to complete the transfer of the HKD to the Account in Hong Kong, it can be inferred that the Defendant suspected CJ’s honesty and integrity, and the source of her funds. If she had indeed asked any detailed questions as to CJ’s background and business, it is incredulous that the Defendant would not have made this clear in her first witness statement, as this is the most important feature to establish her defence, as an honest and bona fide purchaser, acting in good faith in changing her position.

86.  When approached by Zhu with the “opportunity” to make the exchange, an honest person in the Defendant’s position, knowing the facts which she did as to the non-compliant Currency Exchange without the necessary quota and approval, must have asked Zhu why CJ could not deal with BOC in the exchange, and whether it would be proper for Zhu to refer CJ to the Defendant directly. The ordinary decent person would have considered that for such a significant sum of foreign currency to be exchanged, the legitimacy of the source of funds to be received from a complete stranger for the exchange must be clarified, to avoid any risk of incurring legal and possibly criminal liability for receipt of the sum. The only evidence of the Defendant’s enquiries were her hollow assertions in Court that she had asked Zhu/Chen if CJ had engaged in “legitimate business”. These bare and self-serving assertions ring hollow and are incredulous, in the light of all the surrounding circumstances and other evidence. In my judgment, the Defendant was deliberately shutting her eyes to the propriety of the Currency Exchange, to avoid finding out the true facts.

87.  Even if the Defendant had no cause for concern and no reason to ask questions at the time when the Currency Exchange was agreed with CJ on 6 May 2015, at the time when the HKD had been received by the Defendant and the transfer was sought to be made from the Joint Account to the account of another stranger, Hou, the honest and decent person in the Defendant’s position would have been alerted, and must have asked why the money should be transferred to another party instead of CJ, and what right the person had to the money. No questions were asked by the Defendant at all, and this supports the inference that the Defendant had decided to turn a blind eye to CJ’s dealings in and right to receive the money, and whether CJ had any legitimate claim to such money. My finding is that the Defendant knew of sufficient facts from which an honest and decent person would conclude that participation in the Currency Exchange would be dishonest.

88.  Even if, on the facts and evidence in this case, the Defendant cannot be said to have blind-eye knowledge that CJ did not have the right to dispose of the money being transferred to the Defendant, I am satisfied that the state of the Defendant’s knowledge, and her deliberate decision to take the risks of the illegality of the Currency Exchange and any impropriety in the transaction make it unconscionable for her to retain the benefit of the HKD received. The Defendant had been prepared to take the risks of the Currency Exchange, and there is nothing unjust to make her bear those risks and the consequences now, as opposed to putting the loss on the Plaintiff as the innocent victim of the fraud perpetrated by CJ and Dean.

89.  In conclusion, I find on the evidence that the Defendant was not acting in good faith, and that it would not be inequitable or unconscionable to allow the Plaintiff’s claim of restitution against the Defendant.

Conclusion

90.  My finding is that the Currency Exchange is illegal under Mainland law, such that there is no defence to the Plaintiff’s claim for unjust enrichment against the Defendant as a wrongdoer (Lipkin Gorman v Karpnale [1991] 2 AC 548), on the basis of any change of position in good faith (Barros Mattos Junior v General Securities & Finance Ltd [2005] 1 WLR 247). The Defendant cannot be accepted as a bona fide purchaser for value, without notice.

91.  On the basis of my findings as to the Defendant’s state of knowledge, she is liable in dishonest assistance, and in knowing receipt of property subject to a trust and it would be unconscionable for the Defendant to retain the benefit of the receipt.

92.  Judgment is accordingly entered in favour of the Plaintiff in the sum claimed, namely HK$12,476,607, with interest, and costs of the action.

93.  It remains for the Court to extend apologies to the parties for the unavoidable delay in the handing down of this Judgment.